What would you do with an extra $2,900 in your account? In 2019, the IRS issued an average refund of $2,899 per filer for the 2018 tax filing season. That’s greater financial security if you make some smart money moves now.
Pay off credit cards
Use your refund to become a better money manager. Because your credit cards likely carry the highest interest rate among your debts, start there. If you can knock down — or knock out — this debt, think of all the money you’ll save in interest alone this year.
Boost retirement savings
Get closer to making your retirement dreams a reality. Add some or all of your refund to a Roth Individual Retirement Account (IRA) or Traditional IRA.
With a Traditional IRA, your after-tax contributions may be tax deductible. You’ll only be taxed on the contributions and the earnings when you begin making withdrawals.
Roth IRAs are also funded with after-tax dollars, but offer no tax breaks for contributions. However, earnings and withdrawals during retirement are generally tax-free.
Learn more about the IRS’ contribution limits to ensure you don’t exceed the annual amounts. Of course, if you haven’t opened an IRA, this is a great time to do so.
Be ready with a rainy-day fund
This option may not be as exciting as a new flat-screen TV, but the less attractive option sometimes makes the most sense. Get started on a just-in-case fund or boost your current emergency savings. Set a goal to keep at least three to six months of living expenses on hand for unexpected situations (e.g., medical bills, car repair, etc.).
Consider adding your funds to a Money Market Account, which typically offers a higher dividend than a basic savings account. This way you’re less tempted to borrow from the fund, thus saving the money for a true emergency.
After you’ve taken care of the important items on your list, focus on your wants. Do something for yourself with some of your refund dollars. Just spend within reason.
No matter how you choose to spend your tax refund, these tips are a great step toward stretching those dollars.
Article provided by Local Government Federal Credit Union.
The advice provided is for informational purposes only. Contact a financial advisor for additional guidance.